Even as the technology majors are trying to fully absorb the bad news of the cross-currency (falling rupee) impact on their dollar earnings
They believe the indirect impact of the US crisis could be far more severeBANGALORE: Even as the technology majors are trying to fully absorb the bad news of the cross-currency (falling rupee) impact on their dollar earnings, another crisis has landed upon them, with Lehman Brothers filing for bankruptcy and Merrill Lynch being bought over by Bank of America.
The American brokerage house, investment bank and the US bank are customers of Tata Consultancy Services (TCS) and Infosys. Hyderabad-based Satyam Computers also has some exposure to Lehman.
For the second-largest software exporter, Infosys, which earned 35.7% of its total revenues from the BFSI vertical in FY08, Bank of America is one of the largest clients. Merrill and Lehman contribute a small part of Infosys’ revenue.
Analysts, however, feel it would be the largest tech player, TCS, which generates 43.8% of its international revenues from the BFSI segment, that may take the biggest hit. As of June, the company’s banking and financial services contributed 31.8% of its revenues. Of this, capital market brought in 40% of revenues.
TCS has been doing development and maintenance work for Merrill and Bank of America for over a decade.
For Lehman, the Mumbai-based company has deployed less than 50 people.
N Ganapathy Subramaniam, president, TCS Financial Solution, summed the sentiment among local IT companies. “While it is difficult to assess the direct impact of the today’s happening, there is greater concern over the emerging scenario.”
Industry analysts also feel that the indirect impact of the Merrill and Lehman could be harsher than its direct fallout.
“If the credit problem deepens, we may see a liquidity crunch, which may slow down the banking sector. I think the secondary impact could be much more severe,” said James Abraham, director, The Boston Consulting Group (BCG).
He added that income from investment banking was a miniscule (10-15%) part of Indian IT companies’ total BFSI earnings. “While BFSI is the largest sector for domestic IT and BPO, investment banking is a small portion of that. Banking and insurance are a bigger part of the BFSI play,” said Abraham.
V Balakrishan chief financial officer, Infosys, confirmed Abraham’s view. “All the three (Lehman, Merrill and Bank of America) are our clients but it will not have any material impact on our revenues.” Balakrishnan says since Merrill and Bank of America are Infosys’ clients, the It firm may not be drastically impacted. “It depends on who is spending. In this case, it would now be Bank of America, which is our largest client,” said Balakrishnan.
The Infosys CFO is more worried about more bankruptcy on the US financial services landscape. “Further bankruptcy could impact the customer’s ability to spend and could disturb their comfort level,” worried Balakrishnan.
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